BP Refinery (Westernport) Pty Ltd v Shire of Hastings
Privy Council (Australia)
Citations: (1977) 16 ALR 363; (1977) 52 ALJR 20.
The parties made a contract concerning the preferential rating of an oil refinery the appellant company occupied at the time of occupation. This contract was one of two contracts governing the parties’ dealing with the rig, the other being the Refinery Agreement.
The appellant later left occupation as part of a restructuring within their corporate group, before returning. The respondent claimed that this terminated the parties’ agreement. The parties sought clarification from the court on whether there was an implied term in the contract providing that the contract would be terminated if the appellant stopped being in occupation of the rig (even if this was in favour of another company in its group and they later returned).
- When should the courts imply a term in fact into a contractual agreement?
The Privy Council held that there was no implied term in the contract terminating it once the appellant left occupation. They were particularly influenced by the following factors:
- The parties’ contract was made in the context of the broader Refinery Agreement;
- That Refinery Agreement made provision for assignment of the appellant’s rights within their corporate group;
- The respondent’s investment in the oil rig was irrevocable in practice.
These factors indicated that it was not necessary to include the suggested implied term to give business efficacy to the agreement, nor was the suggested term reasonable. Instead, the Privy Council thought that the contract contained an implied term allowing the appellant to assign its rights in accordance with the Refinery Agreement.
This Case is Authority For…
The Privy Council set out five conditions for implying terms in fact into a contract:
- The term must be reasonable and equitable;
- The term must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
- It must be so obvious that ‘it goes without saying’;
- The term must be capable of clear expression; and
- The term must not contradict any express term of the contract.
Later cases, particularly the Privy Council in Attorney General of Belize v Belize Telecom Ltd  UKPC 10, have described this test as
‘not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so’.
With respect to the first condition, Lord Simon explained:
‘It is because the implication of a term rests on the presumed intention of the parties that the primary condition must be satisfied that the term sought to be implied must be reasonable and equitable. It is not to be imputed to a party that he is assenting to an unexpressed term which will operate unreasonably and inequitably against himself.’
The relevance of the reasonableness of the term has been re-characterised by Lords Neuberger, Sumption and Hodge in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd  UKSC 72. They explained that it is not strictly a separate requirement, but rather something which makes it very unlikely that either test for implying terms is met.
Lord Wilberforce and Lord Morris dissented. They agreed with the majority on the test to be applied. However, they disagreed with the effect those principles had on the case and which factors were most relevant.